Nov. 14 (Bloomberg) -- Overseas Shipholding Group Inc., the
largest U.S. tanker operator, filed for bankruptcy protection
after global shipping rates fell and the company gave up trying
to win a federal loan guarantee.

The New-York-based company today listed assets of
$4.15 billion and debt of $2.67 billion in a Chapter 11 filing
in U.S. Bankruptcy Court in Wilmington, Delaware. The company
owns or operates 111 vessels that transport oil, refined
products and natural gas worldwide.

“We will use the Chapter 11 process to definitively
resolve our financial issues,” Chief Executive Officer Morten
Arntzen said in a statement. “An orderly restructuring in
Chapter 11 will provide stability both to OSG and to the entire
shipping industry.”

Overseas Shipholding in February withdrew an application
for a $241.8 million loan guarantee to help pay for two tankers
built at U.S. shipyards after Bloomberg News reported that OSG
ships were calling at Iran’s largest oil terminal and U.S. House
Majority Leader Eric Cantor asked the Transportation Department
to reject the application.

Credit Markets

Since then, the company has been shut out of the credit
markets, in part because it announced in an Oct. 22 regulatory
report that investors could not rely its financial statements
for the last three years, it said in court papers. It blamed the
bankruptcy on the drop in shipping rates, a slowdown in demand
for oil and increased competition.

In response to tightening U.S. sanctions, shipping
companies including Overseas and Frontline Ltd. stopped loading
cargo from Iran. Previous efforts to curb Iran’s oil income and
stop it from developing nuclear weapons were hampered by the
structure of the shipping industry, because vessels are often
managed by companies outside the U.S. or European Union.

An EU embargo on Iranian oil agreed to Jan. 23 placed a ban
on ship insurance. With about 95 percent of the tanker fleet
insured under European law, fewer vessels can load in Iran.

Operating Cash

Overseas said it has more than enough cash for operations
during the bankruptcy case and won’t need so-called debtor-in-possession financing. John Ray, CEO of Greylock Partners, will
serve as chief reorganization officer, the company said.

Overseas Shipholding reported 13 straight quarters of net
losses as tanker rates plunged as much as 96 percent, according
to data compiled by Bloomberg.

Weaker oil demand in the U.S. and Europe caused by the
economic slowdown and warmer winters led to a reduction in ships
crossing the Atlantic, where Overseas Shipholding’s fleet is
concentrated, the company said in a report on its quarter ended
June 30. In addition, an influx of carriers from Asia boosted
competition, the company said.

The price to hire an international crude tanker dropped to
$14,900 a day from $28,000, Overseas Vice President Robert
Johnston said in a court affidavit filed today in the bankruptcy
case.

Workers, Offices

Overseas Shipholding has about 3,600 employees, including
3,170 seafarers, and offices in cities including Athens, London,
Singapore and Tampa, Florida, according to its website. It was
formed in 1969 with the merger of five companies and went public
with an initial offering in 1970, according to court records.

The company has the largest fleet of tankers operating
under the federal Jones Act, which regulates shipping among U.S.
ports. It has an exclusive permit for transferring oil from
large ships to smaller vessels in Delaware Bay. It operates the
only two U.S. flag shuttle tankers in the Gulf of Mexico.

Moody’s Investors Service reduced its rating on the
company’s bonds in August, citing lower shipping rates, excess
tanker capacity and questions about Overseas Shipholding’s
raising money in time to meet loan covenants, even though many
of its ships weren’t yet pledged as collateral.

Analysts’ Report

“Moody’s does not expect average annual tanker freight
rates to meaningfully strengthen above their 2011 levels before
well into 2013,” analysts led by Jonathan Root in New York
wrote in an Aug. 2 report. Ship sales to raise money were
unlikely because market values for oil tankers “remain in the
doldrums,” Root wrote.

Overseas Shipholding warned investors in the Oct. 22
regulatory filing that they couldn’t rely on its financial
statements for the three years leading to Dec. 31, 2011. The
warning was prompted by a review of its accounting for taxes
given its U.S. base and international operations.

Overseas Shipholding, which traded as high as $91.49 in
2007, fell 90 percent this year to close yesterday at $1.13.
Investors include Oslo Asset Management ASA, Foundation Resource
Management Inc., Vanguard Group Inc., Franklin Advisory Services
LLC and Dimensional Fund Advisors LP, according to the
bankruptcy petition.

Rate Decline

A decline in shipping rates since the 2008 financial crisis
has helped to drive other ocean-transport companies into
bankruptcy, including General Maritime Corp., Korea Line Corp.,
Britannia Bulk Plc, Armada (Singapore) Pte Ltd. and Transfield
ER Cape.

Humpuss Sea Transport Pte Ltd., a Singapore-based unit of
an Indonesian company, filed for liquidation in Singapore and in
the U.S. this year.

Overseas Shipholding’s largest unsecured creditors listed
in court papers include DNB Nor Bank of Houston, owed
$1.49 billion under a revolving letter of credit; holders of
$303 million in 8.125 percent debentures due in 2018, under
trustee Bank of New York Mellon Corp.; and holders of
$148 million in 7.5 percent senior notes due in 2024, under
trustee Wilmington Trust Co.